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For instance, the SHA-256 of this word BUTTERFLY (source) is 8c62ace4f9ef8ccd08ca6fb992a8524bb7dbdc0530654bd254c9da07a660949a (HASH). This seemingly random string of letters and numbers contains three important properties:

Bitcoin mining involves three variables: the block, the mining difficulty and a random number. Heres how it all comes together:

Imagine our block consists of the term BUTTERFLY discussed earlier. In reality, the cube could contain a listing of recent, unverified transactions, but lets keep it simple. In order for the block to be solved, bitcoin utilizes a simple test: If the HASH result of the block starts with a certain number of zeros, the block is considered verified.

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For our example, lets say that we have a mining difficulty of simply two, ie, our HASH should begin with two zeros. .

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The problem: BUTTERFLY will always return the same HASH, and it doesnt start with two zeros. Thus what we need is the third variable, a random number (called a NONCE). We take this number, combine it with BUTTERFLY, and HASH again. If it doesnt begin with two zeros, we change the number and try again, and because changing one little number changes the entire HASH result, there's absolutely no way to predict the number well need to solve this! .

We repeat this procedure over and over until we find a number that, when combined with BUTTERFLY, provides us a HASH that begins with two zeros. That number is the solution to the block. Here are some tries:

This arduous procedure of randomly trying to find a number that gives the solution is what makes bitcoin mining such a computationally expensive procedure, and as more miners join the network, the harder it gets. At November 2017, a normal home computer working alone, ie, not an application-specific integrated circuit (ASIC) and not a part of a cloud mining network, could take 2.7 million years to mine one block. .

This has led to the rise of ASIC computers built specifically for mining and to an increase in cloud mining.

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CPU mining. In the first days of bitcoin, mining difficulty was low and not a lot of miners were competing for cubes and rewards. This made it worthwhile to use your computers own central processing unit (CPU) to mine bitcoin. However, that approach was soon replaced by GPU mining.

GPU mining. A graphics processing unit (GPU) is a powerful processor whose sole objective is to assist your computers graphics card try this site in rendering 3D graphics. GPUs are not built for executive decisions (like CPUs) but to be somewhat great labourers, hence GPUs can execute over 800 times more instructions in precisely the exact same amount of time as a CPU.

FPGA mining. Next came mining using field-programmable gate arrays (FPGAs). These greatly outperformed GPUs and CPUs in the mining process as FPGAs are processors which can be programmed to perform specific instructions and only those instructions (instead of being repurposed for mining, like GPUs were).

ASIC mining. Similar to FPGAs, application-specific integrated circuits are processors designed for a specific purpose, in our situation mining bitcoin, and nothing else. ASICs for bitcoin were introduced in have a peek here 2013 and, as of November 2017, they're the best processors out there for mining bitcoin and they outperform FPGAs in power consumption. .

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Mining pools. To offset the problem of mining a block, miners started organising in cloud or pools mining networks. Whenever a miner in one of these pools solves a block, the reward is shared with everyone in the swimming pool in a ratio representative of just how much work you put into the swimming pool (even though you personally never solved the puzzle). .

Cloud mining. Clouds provide prospective miners the capability to buy mining channels in a remote data centre location. There are many obvious advantages, the most obvious beingno energy expenses, no extra heat and nothing to market when you decide to hang your virtual pickaxe.

Once miners get bitcoin, they are given a digital key to the bitcoin addresses. You can use this see this page digital key to gain access and validate or approve transactions.

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Desktop wallets. Software like Bitcoin Core allows you to send and store bitcoin addresses and connects to the network to monitor transactions.

Online wallets. Bitcoin keys are stored online by exchange programs such as Coinbase or Circle and can be accessed from anywhere.

Mobile wallets. Programs like Blockchain store and encrypt your bitcoin keys so that you can make payments using your cellular device.

Paper wallets. Some websites offer paper wallet solutions, generating a bit of paper using just two QR codes on it. One code is the public address where you receive bitcoin and the other one is the private address you can use for spending.